South Korea’s army of retail investors is declaring war on the shortest sellers

Jung Eui-Jung, a former employee of the South Korean bank, recalls his grim experience as a stockbroker more than a decade ago when he lost a small metal band he invested when he lost Won25m ($ 22,000).

“It’s a past I want to forget. Back then, I didn’t have much of a chance to get information. I would get lost in an environment that is biased against amateur traders, ”said the 62-year-old head of the Korean Shareholders’ Alliance, a advocacy group representing about 44,000 retail investors.

The charts have turned around in the past year as retail investors have become a major force in South Korea’s $ 2 billion stock market, accounting for nearly 60% of daily turnover. With this, amateur traders have become a political force, trying to even out the tests against professional investors.

Mom-and-pop investors last year bought a net profit of 63.9 tonnes of Korean shares compared to a net sales of 5.5 tonnes in 2019. This helped push the Kospi index up 118 percent after the last sale boosted by the coronavirus. March, doing one of the best plays markets around the world.

Nearly one-fifth of Korea’s 52 million population is immersed in stocks and data show that local intermediaries have accumulated Won76tn in cash.

“The market dynamics are rapidly changing for individual investors, turning hedge funds into a powerful force that should also be feared,” said Albert Yonge, CEO of Seoul-based investment firm Petra Capital Management.

The wave of Korean amateur traders has been inspired by a U.S. campaign against hedge funds that made bearish bets on companies such as the gaming retail chain. GameStop. The online forum for short sellers Kstreetbets is named after the popular Reddit group r / WallStreetBets.

Members of Kstreetbets call themselves “ants” and have named their cause the “Donghak Ant Movement,” a reference to a growing uprising by farmers in 1894 against corrupt aristocrats and Korean foreign influence. Today, many Korean retailers feel that they have been exploited by local institutional and international investors.

The “ants” are testing their political power by demanding changes in the stock market regulation. Some called for a campaign against government party candidates last year by-elections for mayor this month in Seoul and Busan, the country’s two largest cities, and next year in the presidential vote.

“We can change things if we unite. The government will pay attention if our voices are raised, ”KSA’s Jung said.

About 70% of the members of the Kstreetbets forum, which is run by KSA, are office workers between the ages of 30 and 40. Many are investing in Korea’s fast-growing biotechnology sector and promising industries batteries for electric vehicles.

In February, members of Kstreetbets launched a short campaign that encouraged the purchase of shares in Celltrion and HLB, major Korean biotechnology companies, which were targeted by short sellers.

But concerned about local rules against stock manipulation, members of Kstreetbets have focused on lobbying efforts.

Short sellers are like Grim Reaper for many amateur traders

Korean regulators have twice extended a short-sale ban a year ago, following pressure from retailers. Amateur investors convinced the government last year to allow retailers with large portfolios to expand their capital gains taxes and change their rules to participate more in retail. initial public offering.

Their goal today a ban on short sales, which would allow investors to bet on shares of large chapters from May onwards. Amateur investors believe the ban was helped by Kospi’s short sales on the Korean main board despite only 6.5% of total trade being imposed in the previous year, according to the Korean Capital Markets Institute. It is estimated to be around 35-40 percent in markets like the US, Japan and Europe.

“South Korea is a paradise for short sellers. The unilateral rules of the game have allowed them to absorb money from novice traders, ”said KSA’s Jung.

International investors argue that a short sale is necessary to cover exposure to Korean stocks and that the stock could help prevent overvaluation.

“Short sellers are like Grim Reaper for many amateur traders because they buy shares in rumors that have a huge limitation, regardless of their basics,” said Kwmi researcher Hwang Sei-woon. “They’re simply to blame for falling short of sales without thinking about risky investment models.”

The members of Kstreetbets want it other stringent measures against professional investors, such as higher collateral conditions for borrowing shares, to sell short.

They have asked the State National Pension Service to increase its internal shares, accusing it of making an adjustment in the final market, for selling the funds to Korean shares.

“It’s a David vs Goliath fight,” said a famous member of Kstreetbets. “We know our chances of winning the fight against short sellers are very small but we will continue to fight injustice. Then our children can live in a fairer world.”